Construction of new homes likely continued to slump in November but builder confidence may be at a turning point.
Two indicators of new-home construction— housing starts and building permits—are expected to be released Tuesday morning. The data by the Census Bureau and Department of Housing and Urban Development reflect different stages in the cycle of new home building. Housing starts measure the seasonally-adjusted annual rate at which construction begins on a new home. Building permits, which measure authorizations for the construction of a new home, are a leading gauge of future starts.
Both measures are expected to decline on a seasonally-adjusted basis for November from the month prior, according to FactSet consensus estimates. Total housing starts in November are expected to be at a seasonally-adjusted annual rate of about 1.41 million, down from about 1.43 million the month prior. Permits are expected at a seasonally-adjusted annual rate of 1.48 million, down from 1.51 million in October.
Such expectations come as higher mortgage rates continue to cool the housing market from its hot pandemic norm. The average interest rate on a 30-year fixed-rate mortgage last week was 6.31%, according to Freddie Mac—down from recent highs but still more than double 2021’s final reading of 3.11%.
As mortgage rates have gained, single-family home construction has slowed. The seasonally-adjusted annual rate of one-unit housing starts fell below one million earlier this year for the first time since the early months of the pandemic. The drop is part of a larger pullback linked to home affordability.
Builder confidence has also continued to fall, according to the National Association of Home Builders. The trade group said on Monday that its measure of single-family home builder confidence fell in December for the 12th consecutive month.
But it isn’t all bad news. Robert Dietz, the trade group’s chief economist, said the narrowing of the index’s drop was a “silver lining.” The decline this month “is the smallest drop in the index in the past six months, indicating that we are possibly nearing the bottom of the cycle for builder sentiment,” Dietz said in a statement. “Mortgage rates are down from above 7% in recent weeks to about 6.3% today, and for the first time since April, builders registered an increase in future sales expectations.”
Still, a housing recovery could take time. The economist added that the trade group expects housing to remain weak in 2023. “We forecast a recovery coming in 2024, given the existing nationwide housing deficit of 1.5 million units and future, lower mortgage rates anticipated with the Fed easing monetary policy in 2024,” Dietz said.
Write to Shaina Mishkin at firstname.lastname@example.org